Delayed delivery of new warehousing stock may create supply shortages for logistics companies

Savills Ireland have predicted that the delayed delivery of new Grade A warehousing space in Ireland may create supply shortages for logistics companies in Ireland.

With approximately 44,000 sq m (475,000 sq ft) of new space planned for completion in 2020, just over 60% is already reserved or pre-let.

However, the current hiatus will delay the delivery of some of these buildings, and it is now anticipated that only 60% of the planned space i.e. 626,940 sq m (290,000 sq ft) will be completed before the end of the year.

To add to this, Savills had anticipated that approximately 109,000 sq m (1.171 m sq ft) of new building space would be delivered in 2021. Due to the impact of COVID-19, the property advisor believes approximately 75,000 sq m (800,000 sq ft) will be delivered next year – an overall reduction of over 33% in the total supply due from now to the end of 2021.

Peter Levins of Savills Industrial and Logistics division commented: “There are a number of developers who recently secured planning permission and were gearing up to start construction immediately. These projects will now be delayed until 2021, and some may slip into 2022 due to the time it takes to fully develop a new warehousing or logistics building.

Prior to the COVID-19 crisis, we had identified a lack of supply of good quality modern stock and this factor will most likely now be exacerbated. There are a number of large space requirements in the market from large logistics companies who continue to look towards their longer-term objectives – to operate from more efficient and sustainable warehousing space. We have identified over 1.3 m sq ft of demand for new warehouse / logistics space in our market and this needs to be serviced by developers capable of delivering new quality stock.

“The constraints arising from COVID-19 will immediately impact on the working practices on construction sites where social distancing will need to be implemented and managed, and this will invariably add to construction costs and programmes. These increases may be offset by instances of suppliers competitively tendering for new work, keen to get new work streams progressed and more competitive pricing for some construction materials. Therefore, we feel that construction costs are unlikely to see any tangible decreases in the short term. Because of the reduction in the amount of speculative development coming on stream in 2020, the increase in online spending due to COVID-19 and the demand for 1.3 m sq ft of logistics space, rents are likely to remain at current levels in the short term, with the potential for further growth once the severity of the crisis passes.

The terms ‘supply chain’ and ‘logistics’have come to the forefront of people’s conversations in recent weeks due to the forced changes in everyone’s consumption levels and habits,” said Levins.

Commenting on this, Gavin Butler of Savills Industrial and Logistics division, says: “There have been several comments made about the logistics market to the effect that this sector is least affected by the COVID-19 crisis and will bounce back well once this situation passes. It is important to understand that the main driver of demand for this type of property is consumption. People, and businesses for that matter, consume goods and materials and these require warehousing and distribution channels. If consumption is affected, this has an impact on demand for warehousing and manufacturing space. It is clear to me from our conversations with business owners, occupiers, investors and developers over the past number of weeks that there will be winners and losers from this.

For example, many third party logistics companies (3PLs) and courier companies work with customers across many different sectors. From our investigations, we understand the business-to-business (B2B) side has seen a reduction in activity particularly in the restaurant, bar and hotel sectors.  Conversely, the business-to-customer (B2C) side, is busier than ever as consumers are forced to order products online as retail outlets remain closed. Thus, COVID-19 will accelerate the rise in e-commerce activity in Ireland.  This in turn is likely to have an impact on the way logistics providers and retailers manage their existing supply chains and may result in requirements for larger logistics facilities to accommodate the consolidation of multiple warehouses in order to drive efficiencies and reduce costs.

It is very difficult for anyone to make a judgement on the medium to long term effects of COVID-19 as the situation is so fluid at present. However, we have definitely experienced an increase in demand for warehouse space in recent weeks, albeit, with a significant proportion of this demand centred on requirements for short term space.  We believe that our clients who are flexible and able to adapt quickly will have success in securing tenants and rent roll in the short term.”